The Investment Industry Regulatory Organization of Canada (IIROC) has sanctioned Toronto-based BBS Securities Inc. for directing its discount brokerage division to solicit clients to buy shares in an initial public offering (IPO) so that the issuer could comply with exchange rules, IIROC announced Wednesday.
An IIROC hearing panel approved a settlement in which BBS agreed to pay a $65,000 fine and $3,000 in costs for violating IIROC rules by directing its order-execution-only division, Virtual Brokers, to “solicit clients and potential clients” to buy shares in the IPO of a capital pool company (CPC), Whiteknight Acquisitions III (WK3).
According to the settlement, BBS was acting as an agent for WK3’s IPO, which required the company to secure at least 200 shareholders in order to comply with TSX Venture Exchange rules for CPC transactions.
Amid concerns that it wouldn’t have enough shareholders to meet the requirement, BBS asked Virtual Brokers to carry out a promotion offering clients a $200 credit if they sought to purchase 1,000 shares of WK3 at 20¢ per share, which would cover the cost of the trade.
“This conduct amounts to a recommendation,” which discount brokers are prohibited from providing, the settlement agreement.
BBS spent $25,000 on the promotion for 129 clients to buy WK3 shares, according to the settlement, and was paid $58,610 in commission on the IPO.